The End of Dollar Hegemony by Rep. Ron Paul

[Tempest]

Must be dig up old threads to support Paul day.

Interesting read, but this shows how seriously diluted he is on foreign policy. He thinks that if we just leave them alone, they will leave us alone, despite evidence to contrary. His policies would be very dangerous.

Judge brought up many good points as well.

[Ed Ely]

By Judge -

The dollar is backed by gold - you can take it and exchange it for gold - as much as you want.

prove it!

Ed

[newKid]

Originally Posted by Ed Ely

By Judge -



prove it!

Ed

He doesnt have to prove anything. It just the trufe. havent you figured that out yet Ed!?

[Judge]

are you serious??

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there's only a few thousand places. There's places in every major city where you can walk in and buy bullion, coln or collectiable..

Originally Posted by Ed Ely

By Judge -



prove it!

Ed

[Judge]

lol... genius has it's limits but stupidity knows no bounds....

Originally Posted by newKid

He doesnt have to prove anything. It just the trufe. havent you figured that out yet Ed!?

[newKid]

Originally Posted by Judge

lol... genius has it's limits but stupidity knows no bounds....

you can say that again.

[Ed Ely]

lol... genius has it's limits but stupidity knows no bounds....

Genius knows no bounds and can
recognize stupidity.

All you did was pull up a bunch of
trading houses.

You did not list one FDIC bank that I
could walk into and trade my dollars
by demanding gold for them.

I still want proof!

Ed

[Judge]

The FDIC is an insurance agency... but you can go to commercial banks that have an investment division and probabaly buy gold there...

I also never said the insuring agency sold gold or every bank... I don't understand where you got that from.

I just said you can convert your dollars into gold - and you can, at thousands and thousands of locations, or at your computer.

You just saw the proof.

You can also exchange dollars for lettuce, or soup or clothes - take a gold kuggerand into the grocery store - they won't accept it... They understand it's not the liquid medium that the dollar is.

Originally Posted by Ed Ely

Genius knows no bounds and can
recognize stupidity.

All you did was pull up a bunch of
trading houses.

You did not list one FDIC bank that I
could walk into and trade my dollars
by demanding gold for them.

I still want proof!

Ed

[FrankRizzoXD40]

Unfortunately, there are several disadvantages to the gold standard--some of which Judge has already touched on.

Gold exists in a finite amount. While it's value can grow, it's numbers cannot once sources are exhausted. This means that wealth will be in the hands of fewer people. Think what would happen if we changed to the gold standard tomorrow. Most of us on this board would be broke--our money and much of our credit could be worthless (unless banks started exchanging our money for gold, but that's not likely since banks own less and less gold these days. They simply wouldn't have enough gold. They can't even insure deposits for over 100k. An immediate switch to the gold standard would result in what is called a "run on the banks". Look it up in your history books; it's not pretty.

The other problem with gold existing in a finite amount and only increasing in supply as we can mine it, is that it's value would would artificially start increasing due to the additional demand that would be generated by switching to a gold standard. This would cause an increase in the cost of items and processes.

There is also another related problem: According to the US Federal Reserves estimate of M2 money supply (FRB: H.6 Release--Money Stock and Debt Measures--March 6, 2008) and the US Geological Survey (http://pubs.usgs.gov/of/2002/of02-303/OFR_02-303.pdf), the total amount of gold ever mined is 142,000 tons. At the current price of gold, the value of all the gold in the world would be about $3.65 trillion. The total amount of cash circulating in the US is over 7 trillion dollars. If we switched a gold standard, the price of gold would have to be inflated even higher because the US cannot seize all the gold in the world and put it in our bank vaults.

Furthermore, why can't we learn from our own history of trying the gold standard Remeber the great depression, anyone? Gold mined at a different rate than the growth/decline of the economy can produce inflation and deflation, depending upon if more gold is being discovered or if mining is slowing because we are running out (or can't find more at the time). Historically, the production of gold has usually lagged behind economic growth. The deflation experienced because of this, helped usher in the Great Depression.

Let's look at other examples of the gold standard being used or not used in history.

Bernanke and James' data for the average growth rate of industrial production for these countries (plotted in the top panel above) was positive in every year from 1932 on. Countries that stayed on gold, by contrast, experienced an average output decline of 15% in 1932. The U.S. abandoned gold in 1933, after which its dramatic recovery immediately began. The same happened after Italy dropped the gold standard in 1934, and for Belgium when it went off in 1935. On the other hand, the three countries that stuck with gold through 1936 (France, Netherlands, and Poland) saw a 6% drop in industrial production in 1935, while the rest of the world was experiencing solid growth.
Econbrowser: The gold standard and the Great Depression

There you have it--a fiat currency outperforms gold, historically speaking.
The other problem is that during uncertain times, people will start hoarding gold, which will lower the money supply. Unfortunately, the old way to prevent a drop in the money supply was for prices and wages to drop instantly. Sounds great, doesn't it?

Using a fixed commodity also gives central banks fewer options to combat recession and inflation. Some argue that this is a good idea. Gold prices usually do not rise and decline gradually, which means the effects of its changing value are magnified.

I think that the main reason people promote the gold standard is to prevent inflation, due to the sometimes irresponsible printing of money. They definitely have a point. I agree that too much money is printed sometimes. However, instead of returning to an archiac monetary policy that has been shown time and time again to fail a growing economy, we should pass laws that restrict the government's ability to simply print more money to solve problems. Wouldn't this be a good compromise? We could fix the printing of money to the increase in the CPI, or set a certain percentage of currency that we are allowed to print. I know that there are some rules, but either we aren't sticking to them or they aren't good enough.

Another good idea is to have the government keep a certain amount of it's assets in gold, just in case of some kind of unforseen emergency.

The final problem that I have with the gold standard is that it would reduce the quality of life for many Americans. Since gold exists in a finite amount and less people would have money if we returned to the standard, banks would be unable to extend loans for enough money for mortages and other forms of credit. Gold simply cannot be mined fast enough (and eventually it runs out) to keep up with the booms of our economy. We would be restricting our growth and the ability of our citizens to prosper.

Frank

[Dhunter55]

Originally Posted by FrankRizzoXD40

I think that the main reason people promote the gold standard is to prevent inflation, due to the sometimes irresponsible printing of money. They definitely have a point. I agree that too much money is printed sometimes. However, instead of returning to an archiac monetary policy that has been shown time and time again to fail a growing economy, we should pass laws that restrict the government's ability to simply print more money to solve problems.

That's a point Ron Paul has brought up time and time again during his campaign. He was the only candidate I can recall who's bothered to address the issue.